Goldman Sachs Calls For Microsoft To Spin Off Xbox Division

It’s hard to believe, but by some analysts measuring, the Xbox division of Microsoft is still unprofitable due to “corporate overhead”. To this end, Goldman Sachs, a well known global investment banking and securities firm, has lowered Microsoft stock from a “buy” to “neutral”, and adjusted the target stock price from $32 to $28. To correct for these issues, the firm is suggesting that Microsoft spin Xbox off into its own division, but somehow we don’t see the company heeding that advice.

The problems arose when a break down of the various Microsoft divisions was done, and the Entertainment & Devices division, which includes the gaming console, came in last place at a value of $3.6 billion. This compares with the Windows/Windows Live division valuing at $107 billion, the business division close behind at $99 billion and servers & tools raking up $43 billion according to GameIndustry.biz.

Goldman Sachs’Sarah Friar described the situation with the Xbox division as:

The Xbox products could be an appealing stand-alone entity, given the historical success of the Xbox and the products’ brand strength, and the business could show unlocked value with forced cost discipline compared to as a piece of Microsoft.

The report went on to say that the investment firm saw the Kinect improving the profitability of the division, and applauded Microsoft for Xbox Live being one of the largest cloud-based communities in the market.

Personally, I think Goldman Sachs is way off the mark on all of this. The Xbox is quickly gaining tighter and tighter integration with the rest of the company, and spinning it off into its own corporation would add just that many more hurdles to the process. Yes, the Xbox may not be the crown jewel of Microsoft, but I also don’t think they are looking far enough down the road.

It’s obvious that with the Kinect launching this fall that Microsoft is trying to cut itself a larger share of the money people spend in their family rooms. They are attempting to turn the Xbox 360 your entertainment hub, and make sure that you come to rely on it for as much as possible. This says to me that the company has much bigger plans for the console down the road, but I won’t even try to hazard a guess as to what those plans might entail.

Spinning the Xbox off at this point would be fairly counterproductive to what the company has already built, and obviously plans to build. Microsoft is one of the few companies in the world with enough capital to take a very long term run at building up a brand, and I think that is exactly what it is doing. Spinning it off at this point would be premature at best.

Of course, as I said, it is highly doubtful that Microsoft will heed this unsolicited advice.